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Rare Earth Metals

Commodities prices have been exceptionally volatile in recent weeks, with big rallies and plunges intermingled. While this commodities risk trade often looks capricious and schizophrenic, it actually has a logical and consistent driver: stock markets.

Never has there been a divergence between the price of the rare earth ores and the developing rare earth miners as there is now. The current commodity correction has caused the high flying rare earth sector to plunge to critical support levels.

The surging price of rare earth minerals is putting pressure on industrial end consumers across the globe. Automobile producers as well as computer and mobile phone businesses are as a result paying higher prices to produce their goods.

There have been major developments this week in the rare earth arena, which could hold significance for the expansion into Europe of Molycorp and the development of a US domestic supply chain of rare earths.

Rare earth oxide producer Molycorp. Inc. said it will double its rare earth production capacity to about 6,000 tonnes per year from 3,000 tonnes with acquisition of a controlling stake in Estonia's AS Silmet, one of Europe's two rare earth processors.

The rare earth sector is experiencing an explosion of investment interest as China places restrictions and raise taxes on rare earth oxides, causing soaring prices. As the crisis intensifies there may be more strategic acquisitions for assets.

Any rare-earth mining and concentrating operation must increase the radioactive content of the concentrate over the mineral in the ground. So the issue of allowable radiation levels will need to almost always be addressed.

This means a short-term increase in the supply of these materials, since the production of them is mostly in an unaffected China. This should mean a short-term decrease in the price of the critical rare-earth metals.

Chinese domestic demand growth for the rare-earth-permanent-magnet metals neodymium and dysprosium over the next five years, will be influenced and determined by the new Chinese economic development Five-Year Plan.